* Thaksin still the power behind govt from exile in Dubai (Updates situation on streets, adds Yingluck's call for talks and analyst comment)

By Amy Sawitta Lefevre

BANGKOK, Jan 13 (Reuters) - Tens of thousands of Thai anti-government protesters occupied parts of central Bangkok on Monday, meeting no resistance from the authorities, ratcheting up a two-month agitation to force the resignation of Prime Minister Yingluck Shinawatra.

Police and soldiers kept a low profile as the "Shutdown Bangkok, Restart Thailand" drive got under way in the city of about 12 million people, and the mood among protesters was festive, with many singing and dancing in the streets.

Although major intersections that normally teem with cars and trucks were blockaded, city trains and river ferries were operating, most shops were open and motorbikes plied the roads freely.

But protesters said they were prepared for a long haul to tighten the noose on the capital, suggesting the crisis could drag on for days, if not weeks, threatening to inflict substantial damage on Southeast Asia's second-biggest economy.

The upheaval is the latest chapter in an eight-year conflict pitting Bangkok's middle class and royalist establishment against the mostly poorer, rural supporters of Yingluck and her self-exiled brother, billionaire ex-premier Thaksin Shinawatra.

Thaksin was ousted by the army in 2006 and sentenced to jail in absentia for abuse of power in 2008, but the former telecoms tycoon still looms large over Thai politics and is the dominant force behind his sister's administration from his home in Dubai.

In a bid to end the unrest, Yingluck - who has a commanding majority in parliament - called a snap election for Feb. 2. Protest leader Suthep Thaugsuban has rejected the poll, which Yingluck's Puea Thai Party would probably win.

As the blockade began to bite, Yingluck invited the protest leaders and political parties for a meeting on Wednesday to discuss an Election Commision proposal to postpone the vote, according to a senior aide of the prime minister.

However, the protesters are determined to install an appointed "people's council" to change the electoral system and bring in other reforms to weaken Thaksin's sway.

"This won't end easily, and the turnout today is impressive, so it seems this deadlock looks set to continue," said Sukum Nuansakul, a political analyst and former dean at Bangkok's Ramkhamhaeng University.

"Suthep has said he won't negotiate with the government, yet the government said today it will try to invite all warring parties to the table. The protest group's aims to overhaul the political system in this country won't happen overnight. This could be just the beginning."

Eight people, including two police officers, have been killed and scores wounded in violence between protesters, police and government supporters since the campaign against Yingluck's government started in November.

Shootings were reported overnight near a government administrative complex that protesters began to blockade late on Sunday and at the headquarters of the opposition Democrat Party, which has thrown in its lot with the protest movement.

At one junction, near the American and Japanese embassies, around 100 protesters sat on the road to halt traffic. Som Rodpai, 64, said they would leave after nightfall, amid fears their citywide protest could spark a violent reaction.

Suthep's stated goal is to eradicate the influence of the Shinawatra family on Thai politics, but he says he would call the protests off if, as some fear, civil war breaks out.

Pro-Thaksin groups started rallies in several provincial regions on Sunday but are steering clear of Bangkok for now.

The government has deployed 10,000 police to maintain law and order, along with 8,000 soldiers at government offices.

"We don't want confrontation with the protesters ... In some places we will let them into government buildings," Foreign Minister Surapong Tovichakchaikul said on Sunday.

"SIT AND MEDITATE"

National security chief Paradorn Pattanathabutr said around 20,000 protesters had joined a march from what has been the movement's main camp at Democracy Monument in the old quarter.

Among them was Prasert Tanyakiatpongsa, a small business owner, who backed Suthep's plans for electoral reforms.

"I'm not sure if we can achieve what we want in a day but maybe we can after a week ... We are not out to clash with police. We will sit and we will meditate," Prasert said.

Although rumours of a coup are rife, the military, which has staged or attempted 18 coups in 81 years of on-off democracy, has tried to stay neutral this time and army chief Prayuth Chan-ocha has publicly refused to take sides.

But some fear extremists or agents provocateurs could instigate violence to provoke military intervention, leading to a repeat of 2010 when more than 90 people, many of them Thaksin supporters, were killed in an army operation to put down a rally that had closed parts of central Bangkok for weeks.

The latest protests took off when the government tried to push through a political amnesty that would have let Thaksin return home without serving jail time for corruption. The bill was ultimately withdrawn but the agitation gathered pace.

Thaksin, who redrew Thailand's political map by courting rural voters to win back-to-back elections in 2001 and 2005, gained an unassailable mandate that he then used to advance the interests of major companies, including his own.

He is opposed by the elite and establishment, who feel threatened by his rise and regard his sister as a puppet. Thaksin's opponents include some academics who see him as a corrupt rights abuser and the urban middle class who resent, as they see it, their taxes being used for his political war chest.

The unrest has hurt tourism and further delayed huge infrastructure projects that had been expected to support the economy this year at a time when exports remain weak. Consumer confidence is at a two-year low.

Protest leaders say they will not shut down public transport or Bangkok's airports. Anti-Thaksin protesters shut the two main airports for days in late 2008, causing chaos for tourists and exporters.

However, the central bank, finance ministry and some other ministries have been forced to move operations to buildings around the city or even to neighbouring provinces.

"The aim is not war," Kasit Piromya, a former foreign minister and member of the opposition who joined Monday's protests, told Reuters. "We have to keep pressure on the government until it is crippled and cannot function." (Additional reporting by Andrew R.C. Marshall, Panarat Thepgumpanat and Orathai Sriring; Writing by John Chalmers; Editing by Alan Raybould and XXXX XXXX)